Loss aversion
Also called: fear of losses
The tendency to feel a loss more strongly than a gain of the same size.
Studies have repeatedly found that losses feel roughly twice as painful as equal gains feel pleasant. In investing, loss aversion leads people to hold losing shares hoping to break even, to sell winners too early, and to panic in market falls.
Example
Many people refuse a fair coin toss that wins ₹1,200 or loses ₹1,000, even though on average it pays.
Learn more in these lessons
- Loss aversion, confirmation bias and overconfidenceWhich mental shortcuts cost investors the most, and what can you do about them?
- Emotional decision-makingHow do you stop fear and greed from making your investment decisions?
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